The central bank’s decision to hit the brakes on its key policy rate cuts is a cautious move. Keeping interest rate unchanged at 12% came as a shocker to many, as the market was all but certain of yet another major reduction. Caught between market expectations and economic reality, the State Bank of Pakistan’s call is tough but necessary.

While everything seems to be going well for the economy, the SBP is not buying the optimism. The country has witnessed a series of aggressive slashes over the past six months. That indeed has helped revive the economy. Additionally, inflation now stands at a near-decade low of 1.5% (for February), and authorities are hopeful of securing the $1 billion tranche from the International Monetary Fund during the ongoing review. Overall, things look pretty good from this angle.

However, let us have a reality check. Pakistan’s economic house is not exactly in order. Inflation may be at record lows, but global risks are rising. The rupee is always one shock away from slipping, oil prices are shooting up, and food costs are unpredictable. A premature rate cut at this stage not only increases private sector borrowing and spending but also risks fresh inflationary pressure and capital flight. The bank saw the danger and chose not to gamble, because the last thing Pakistan needs is another round of imported inflation.

Of course, cheaper credit makes businesses happy, but it must be kept in mind that growth built on artificial stimulus is never sustainable. Any reckless move could land Pakistan into another boom-bust cycle, and that is unaffordable this time

On the flip side, businesses and consumers might feel left out in the cold. High borrowing costs are indeed choking the industries at a time when they are in desperate need of breathing space. Of course, cheaper credit makes businesses happy, but it must be kept in mind that growth built on artificial stimulus is never sustainable. Any reckless move could land Pakistan into another boom-bust cycle, and that is unaffordable this time.

The SBP is rightly playing the long game to ensure that rates do not just come down but also stay down. Also, let us not pretend this decision was all about economic prudence. The bank’s move simultaneously signals discipline to the IMF and reassures creditors, keeping its powder dry. The matter of fact is that despite positive indicators, the country’s economy is still walking a tightrope. Calculated risks could be taken, but not with so many warning signs. One thing Pakistan needs right now is a steady hand on the wheel. The SBP’s approach may seem frustrating, but restraint is sometimes the smartest strategy.